As stated in the previous chapter, one of the first steps in starting your own forest products business is to establish what aspect of the industry you wish to enter. This requires significant research and personal effort on your part; for example, if you want to start a cabinet manufacturing business, you need to be sure that you have an extensive knowledge of that area, and skills that allow you to create a high quality product that your customers will value.
Once you have an idea it is important to be sure that you understand where you fit into the big picture of the business. For example, if you are interested in starting a small sawmill, you should understand who you are competing against. It is very difficult to start a softwood structural lumber company, being that the main competitors can produce on an efficient scale and comply with all the laws associated with that product. This would take extensive amounts of money just to enter this part of the industry. Going back to the cabinet manufacturer idea, you need to understand how you fit in the local picture of competition and demand. If your area already has a sufficient supply of manufacturers, and the demand isn’t that great, you may want to reconsider your business idea. It cannot be emphasized enough, but having knowledge and the implementation of that knowledge is essential to furthering your business ideas.
In this chapter, we will take a look at some of the key business success factors that need to be taken into consideration. We will take a brief look at marketing as a whole, and have a short activity that will help you think more critically about your business ideas. As you read through this section, try to envision each factor not as a one-time only thought but rather a as a continuous process. This chapter will give only an overview of the marketing concept. To find a more detailed description of the marketing concept within the forest products industry, read the USDA manual titled, “A Marketing Guide for Small and Medium Sized Primary Forest Products Processors”.
A Look at Marketing
Before you can understand key business success factors, it is important to understand the concept of marketing. All successful businesses, large and small, focus a large portion of their energy on marketing. Marketing is much more than advertising; it has been defined as, “â€¦ a total system of business activities which is designed to determine customer’s needs/desires, then to plan and develop products and services to meet those needs/desires, and then to determine the best way to price, promote, and distribute the products and services to the customers” (Sinclair, 1992). In essence, marketing entails the entire process of choosing a product, producing a product, and then successfully selling that product, to fulfill a need of a customer, for a profit and meeting the business’s goals. Key business success factors will be determined by the ability to follow the roadmap of marketing. A common road map in marketing is called the “Marketing Mix”. It is composed of product, price, place, promotion (Peter 2008). This can be seen in the diagram drawn below.
Figure : Marketing Mix Elements (Peter 2008)
We will take a brief look at each of the “Marketing Mix” elements.
The product element of the marketing mix is perhaps the most important element because it is the most basic means by which your company will receive money from the customer. A product is the very thing you offer your customers and can be defined in one of three ways.
Physical Object: This is typically the final physical product you sell to the customer such as lumber, furniture, cabinets and so forth. At the end of the exchange, you will give the customer the physical object and they will give you money in return.
Service: An example of a service is where you receive money from a customer to fix or restore a piece of furniture. While they own the furniture itself, they are paying for your skills in repairing that object.
Idea: Many innovators sell their ideas to individuals or organizations that believe a profit can be made from that idea. An idea can be something as simple as a developing a new way to join cabinet pieces together, to creating the instructions for how to build an end table.
In addition to the three aspects of product concepts, there are three broad categories of the kind of products that can be produced. These categories are: commodity products, specialty products and differentiated products (Sinclair 1992).
A commodity product is a product that has very little differentiation to other products similar in nature and is usually produced on a mass scale. These products are marketed to consumers who have a similar needs and only truly (Sinclair 1992). A commodity product on the market would be softwood dimensional lumber. A standard 2×4 is a virtually the same whether you buy it from GP or Weyerhaeuser.
A specialty product is “developed and offered to a small group of customers or small market segment” (Sinclair 1992). This kind of product is completely opposite to the commodity product. It targets a specialized need among its customers. This can be a cabinet manufacturer that tailors each cabinet to the need of its customer.
A differentiated product “â€¦lie between specialty products and commodity productsâ€¦ (and) are produced with difference or variations in order to satisfy different market segments, but are not marketed to as narrowly a defined niche as specialty products” (Sinclair 1992).
Having a good product to sell to your customers is one of the first key success factors for your business. Businesses spend an immense amount of resources in researching new or existing products and finding a way to maximize their profits. If your business is able to produce and sell a good product, there is a high probability that you will leave a lasting, positive impression with that customer. This impression with a combination of good service will likely help the customer to return for more business.
The price element is one of the most sensitive aspects of the marketing mix. If you decide to price your product too high, there is a good chance that you will never see a customer. If you price your product too low, you may elude yourself of potential profits.
The price can be either standard or flexible. It can be competitive when there is a more clear and established value to the product, such as lumber. Lumber typically as a set value based on what the market value of that quality of lumber has been selling for. There are organizations that specialize in price referencing such as “Hardwood Market report”. These organizations produce a weekly report of the average rate of lumber prices per thousand board feet.
Prices can be flexible when there is personal service or specialty that goes into a product. For example, a hardwood cabinet manufacturer can customize a cabinet system to fit a personal kitchen. This customization allows for more price flexibility where negotiations and estimations can take place. The type of field you wish to enter, along with your offered product, will help to determine the way you price your product. There are many books that are written just on pricing strategy but the detail of pricing will not be covered in this manual.
As with price, there are many books and theories as to the proper forms of promotion. We will only give a quick look at what the promotion element is and how it impacts you and your business idea in the forest products industry.
The promotion element of the marketing mix is any form of communication which can create greater desire and demand for your product, good, or service. This can come in the form of advertising, sales promotions, personal selling, and publicity (Sinclair, 1992)
Advertising can come in many different forms. It can cover all aspects of media such as television, radio, and internet. In addition to these electronic devices, advertising can also cover magazines, newspapers, and fliers. Advertising is a way in which you can better promote, describe, and explain the product you are selling. This gives more information to the potential consumers about what it is you have to offer.
Sales Promotion is typically any incentive or technique which gets the customer to purchase your product. Common forms of sales promotions are, but not limited to, trade shows, samples, coupons, “point-of-purchase” display materials, and “cents-off” approaches (Sinclair, 1992). These types of sales promotions reach out the customer to help motivate them to try and buy your product.
Personal Selling is typically defined as a face-to-face selling of a product. This requires interaction between you as the seller and the customer. It gives you the ability to handle the relationship aspect of selling your product. It can be assumed that each of us has experienced positive and negative personal sales interactions. Have you ever been to a business where you weren’t treated very well by the seller. Typically these experiences leave a negative impression of the product, company, and person selling the product. It is critical to treat each of your customers with respect and concern. To have a good reputation as a business is one of the best forms of promotion.
The place element of the marketing mix can also be referred to as “Distribution”. To simply describe this aspect of the marketing mix, we will take a brief look at what falls within this element. One of the first things associated with place, is the actual placement of your business or product holding. Location is critical when determining the type of business you wish to establish. You must ask yourself the following questions.
Does your business require customers to come to you or you to your customers?
Does your business need a lot of space to hold products or can it be within a relatively small area?
How much production space will be required
Will you produce the product yourself or outsource it to a separate company
Will you sell the product directly to the customer or will you sell it to another company who will sell directly to the final consumer
Where will your raw materials come from and how will you get them to you?
These are just a few questions that are related to this aspect of the marketing mix. Each of these questions has to do with place and distribution. The place of the promotional mix not only serves as a reminder of where the physical location of your store will be, but also the logistical aspect as well. These are crucial areas for business success, and can greatly affect your pricing. As you begin to develop your business idea, take careful consideration of the place and distribution element of the marketing mix.
Practical Application: A Look at Business Reputation & Customer Service
When it is all said and done, you have to have an ability to satisfy the needs of your customers. If you are unable to do this, then your business will not be successful. The purpose of this chapter is to make you think more critically about your business idea. To think critically now will save the time, money, and energy of having to correct any unseen error in the future. Listed on the next two pages is a short activity to help you think more critically about your business idea. Either write your answer down on your copy of this manual or write your answers in a separate journal.
Question & Answer
What is your business idea and why did you choose it? What customer needs does your product or business satisfy.
Who is your competition and what benefits could you offer that would make a customer choose your product over your competitor’s?
What will your distribution look like? How will you obtain raw materials to produce your product and how will you sell your product?
Map out your business idea and list all the strengths, weaknesses, opportunities, and threats to your potential business (SWOT Analysis). Think critical here!
Experiences and Application
When have you had a negative experience in buying a product?
Who was involved that made the purchasing of that product negative and why?
In what ways can you avoid making the purchasing of the product better for your own future customers?
In contrast, when have you had a positive experience in purchasing a product?
Who assisted you and what made the purchasing of that product fun, easy, or enjoyable?
In what ways can you help build good company and product image to your customers?
Chapter Two Citations
Peter, J. P., Donelley, J. H. Jr., (2008). A Preface to Marketing Management. The McGraw-Hill
Companies, Inc. pp 227.
Strauss, S. D. (2005). The Small Business Bible. Hoboken, New Jersey. John Wiley & Sons, Inc.
pp 3, 47.
Sinclair, S. A. (1992). Forest Products Marketing. McGraw-Hill, Inc. pp 3, 17, 79-82.
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